Homebuyers make a last gasp effort before the holidays, but interest rates offer little incentive

Mortgage rates have hovered around the same range for roughly two months, giving current borrowers nor potential homebuyers little incentive to get into the market. Total mortgage application volume was essentially flat last week, up just 0.2% from the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances $806,500 or less increased to 6.40% from 6.37%, with points decreasing to 0.60 from 0.62, including the origination fee, for loans with a 20% down payment. That was the highest since early October. Last year, during the same week, the average rate was 46 basis points higher.

Despite the slight rate increase, applications for a mortgage to purchase a home rose 8% for the week and were 20% higher than the same week a year ago. That was driven by buyers looking for cheaper loans. The government purchase index, which includes FHA, VA, and USDA applications, increased 9% for the week and had its strongest week since 2023.

“Affordability remains a challenge in many markets and government loan programs remain appealing to qualified buyers looking to purchase a home. The average purchase loan size decreased to its lowest level in two months,” said Joel Kan, MBA Vice President and Deputy Chief Economist.

Applications to refinance a home loan dropped 6% for the week but were 117% higher than the same week one year ago. That enormous annual difference is not because of any refinance boom; it’s simply that the numbers were so very low a year ago.

Mortgage rates dropped back a bit to start this week, according to a separate survey from Mortgage News Daily (MND).

“Rather than credit any of the recent underlying events, the improvement in rates/bonds has more to do with idiosyncratic trading conditions that are often seen on major holiday weeks,” explained Matthew Graham, chief operating officer at MND. “That said, some of [Tuesday’s] data and events contributed. These include another weak reading in weekly employment numbers from ADP as well as a reaction to rumors that rate-friendly Kevin Hassett will be the next Fed Chair.”